FOCUS: Yandex, VK’s growth likely to slow till end 2021 after solid Q3

By Yekaterina Yezhova

MOSCOW, Nov 8 (PRIME) -- Yandex has beaten its archrival VK, formerly Mail.ru Group, by the July–September revenue, while VK topped market expectations for the EBITDA margin, but analysts expect the two Russian Internet giants will slow down in the rest of 2021.

“Both Yandex and VK have succeeded this time in reporting in line or above expectations. But VK cut its 2021 revenue guidance because of a delay in all games releases till 2022. Yandex, on the contrary, has raised its revenue outlook for a third time this year thanks to the strong dynamics of some businesses, including search, taxi, foodtech, and e-commerce,” investment company Veles Capital analyst Artyom Mikhailin told PRIME.

Yandex said in its July–September report under the U.S. GAAP standards that it expects its 2021 total group revenue at 340–350 billion rubles.

The company’s revenue advanced by 52% on the year to 91.3 billion rubles in the reporting quarter, including its retail platform Yandex.Market in 2020. Sale of online advertisements stayed Yandex’s core source of cash, contributing 42.6 billion rubles, up 27% on the year.

Total adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) decreased by 62% to 5.6 billion rubles and the total adjusted EBITDA margin dropped by 18.6 percentage points to 6.2%.

“Yandex shows very rapid advancement, but at the EBITDA level, almost all incomes are reinvested in development of e-commerce. As of the end of the third quarter, the EBITDA loss of this business widened to a record 11.7 billion rubles,” Mikhailin said.

Investment company Aton said that the margins were expectedly under the pressure from investment in Yandex.Market, FoodTech, and Yandex.Delivery, which are reported as part of the Taxi segment, as well as Media Services, all of which demonstrated good operating performance and sustainable growth.

Yandex’s revenue related to the Taxi segment, excluding the sales of goods, rebounded by 66% to 26.3 billion rubles, while revenue from the sales of goods rocketed by 136% to 14 billion rubles.

Investment company VTB Capital said in a research note that the “strong growth in the high-margin advertising and ride-hailing businesses help sustain heavy investments in e-commerce, which in turn is enjoying accelerating momentum. The rapidly expanding Logistics segment is turning into an important new source of value, in our view.”

Mikhailin at Veles Capital expects Yandex’s growth to slow down in October–December as the bases for comparison will be adjusted for Yandex.Market consolidation in July 2020. “We think Yandex’s margins will improve because the bulk of the planned e-commerce costs has already been made,” he told PRIME.

VK reduced its 2021 revenue guidance under the International Financial Reporting Standards (IFRS) to 124–127 billion rubles from 127–130 billion rubles, “while the EBITDA margin is now expected to slightly widen,” as investment firm Sberbank CIB said.

“The revenue guidance downgrade was attributable mainly to the weak growth of the gaming segment, which owed to the launch of certain titles being pushed back to next year amid growing customer acquisition costs – (anonymous unique identifier) IDFA (Identifier for Advertisers) changes make it harder to target users, while competition has increased, which also raises costs. The company noted that out of 20 games in development, from five to eight should be ready for the launch within the next 12 months,” Sberbank CIB said.

VK’s revenue from massively multiplayer online (MMO) games decreased by 0.8% over the year to 8.8 billion rubles, while revenue from online advertising increased by 28.2% to 12.2 billion rubles. Revenue from education technology services jumped by 56.2% to 2.5 billion rubles, and total group aggregate segment revenue rose by 18.6% to 30.4 billion rubles, according to the company’s July–September statement.

The Internet holding said that social network VKontakte, which became the rebranding pivot, “remains the key contributor to our core online advertising revenue stream as well as the largest communications & social (C&S) reporting segment, with its quarterly revenue exceeding 7 billion rubles on the back of 29% year-over-year revenue growth.”

VK’s aggregate segment EBITDA advanced by 28% to 8.4 billion rubles, and the EBITDA margin added 2 percentage points to 27.7%. “In VK’s report, a high margin of the C&S segment became a good surprise for us,” Mikhailin said. The segment’s EBITDA rose by 28.1% on the quarter to 7.4 billion rubles, and the EBITDA margin gained 3 percentage points on the year and 8 percentage points on the quarter to 49.1%.

“In the games segment, the margin also stayed high thanks to small marketing costs, which, among others, improved the margin of the whole group,” the Veles Capital analyst said.

In October–December, Mikhailin expects VK’s growth rates to slow down as well because of the high base of comparison in advertising and the lack of games releases.

(71.4876 rubles – U.S. $1)

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